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On Our Radar

Celgene Corporation's Future: Everything You Need to Know in 5 Slides

A sure sign biotech has come of age: On Monday, at the JP MorganHealthcare Conference, Celgene gave guidance all the wayout to 2020. For many years, the biotech had just given a single year's guidance, and then last year the company gave guidance for 2015 and 2017 in addition to the current year's forecast. Now we've got a five-year outlook.

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Call it more of a goal than a prediction, since there weren't any brackets on the forecast; Celgene is looking for product sales of greater than $20 billion and adjusted earnings per share of greater than $12.50. But it's still a sign that the big biotechs are looking more like big pharma than their smaller biotech brethren.

With a base of existing drugs to build off, it's easier to make predictions and not have to rely on pipeline drugs to drive most of the growth. Celgene is predicting 18% compounded annual growth, but only three percentage points of that are due to new medications and new indications for existing drugs.

Source: Celgene.

One advantage to being a large company is that you can be more efficient, which increases profit margins. While revenue is expected to increase 18% per year through 2020, Celgene believes it can increase adjusted earnings per share by 23% on average over the next five years. In 2015, Celgene's adjusted operating margin is expected to increase 140 basis points.

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Source: Celgene.

This next slide is rather busy and hard to read, but that's kind of the point. It shows all of the external collaborations Celgene has set up to help it discover new drugs. Unlike many large drugmakers that prefer to license middle- and late-stage drugs, making the developers take on the risk of early failure, Celgene has quite a few discovery-stage programs. Some of them are even designed as build-to-buy deals where Celgene supports early research and has an option to buy the company down the line.

Source: Celgene.

To put it a little more bluntly, in the coming years, Celgene will be increasingly dependent on drugs discovered outside its walls. This list of early- to mid-stage drugs is advancing to a point where the company needs to make a decision about whether to continue with the five Celgene drugs on it and seven drugs from its partners.

Source: Celgene.

Finally, investors should keep in mind that the company is typically conservative with its guidance. Celgene beat its earnings-per-share forecast for at least the past five years running.

Source: Celgene. *2013 guidance provided for net product sales.

We could certainly see compounded earnings-per-share growth of more than the company's expectation of 23%. Remember, there wasn't a top cap on the guidance.

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